It seems that subscribers are not the only people unhappy with Netflix right now. Netflix announced Thursday that it will have to drastically lower subscriber projections for the third quarter. Wall Street responded quickly and negatively to the announcement demonstrating that investors might be questioning the growth of the company moving forward.
Netflix announced it expects to report 1 million less subscribers in the third quarter than it originally anticipated. That drop amounts to about 4% less subscribers than expected. Most interesting is the fact that the lowered projection includes about 800,000 less DVD only subscribers than the company expected.
It appears everyone who cancelled their subscriptions as a reaction to the significant price hike is being heard. Wall Street also got the message and Netflix found their stock closing trading at $169.25 a share, down $39.26. That is a startling 18.9% drop. The only good news to come out of all of this is that the number of subscribers who pay for both DVD and streaming remains unchanged at 12 million.
The price hike is likely the primary cause for the lowered subscriber projections. When the increase was first announced Netflix seems very confident that the increase would not change the demand for their service. It appears they have miscalculated by about 1 million subscriptions.
The other issue involved here is the fact that the Starz deal Netflix had in place has essentially fallen through. Starz wanted to strike a new deal to the expensive tune of $300 million instead of the $30 million that was agreed upon in 2008. Netflix doesn’t want to pay a 10 fold increase so they let Starz walk away, taking a good chunk of the streaming content on the service with them.
This news puts competitors in a position to pick up some of the subscribers Netflix is shedding. Blockbuster has already called out Netflix in promotions and offered better prices to angry subscribers after the announcement of the price bump. If Blockbuster can put together a compelling service that offers good prices and plans they will be in a position to not only grab subscribers away from Netflix but potentially content providers as well. The smart thing to do here is take advantage of the pricing model that had previously worked so well for Netflix, offering the streaming as a cheap add on to a DVD rental service.
I personally canceled my streaming plan because of the combination of the price and the lack of quality content on that side of the service. If Blockbuster or someone else can offer something compelling I would definitely be willing to check it out. Did you dump Netflix after the price hike? Would you be willing to give a competitor a try if the price was right? Let us know in the comments.